Opting Out of Texas Workers’ Comp Doesn’t Have to Mean Going Bare

While Oklahoma recently adopted legislation under which employers may choose an alternative to the statutory workers’ compensation system in certain circumstances, Texas still the only state in which participation in the workers’ compen­sation system is truly voluntary.

As such, many employers in Texas choose to “nonsubscribe” to workers’ comp but that doesn’t mean they necessarily go bare when it comes to looking out for their injured workers.

The bifurcated system of protecting the interests of injured workers in Texas is not a 50-50 proposition with half of Texas employers opting in to the workers’ comp system and the other half opting out.

Though the numbers fluctuate, the Texas Association of Responsible Nonsubscribers (TXANS) reports recent estimates show that approximately 114,000 employers operate as nonsubscribers in Texas.

About one-third of employers are considered nonsubscribers, said Roy Powell, director of nonsubscription for Austin-based Tejas American General Agency (TAGA). “When you opt out of the workers’ comp system in Texas you automatically become a ‘nonsubscriber’.”

At 33 percent, the number of non­subscribers has increased slightly from 32 percent in 2010, according the Texas Department of Insurance – Division of Workers’ Compensation. Not all of those nonsubscribing businesses carry insurance to cover worker injuries, however.

Powell said that up to 10 years ago nonubscription probably held around 40 percent of the market, but increased competition in Texas has contributed to the decline in the number of nonsubscribers.

However, Powell said, even though nonsubscription has dropped to 33 percent of the market, “it’s remained pretty consistent over the last four or five years.”

The Nonsubscribers

“The types of business that generally go from workers’ comp into nonsubscription are those employers that have made the determination to be in more control of their claims and generally take better care of their employees through better medical management and better physician outcomes,” said Blake Stock, CEO of Dallas-based Combined Group.

With nonsubscription, employers tend to be more “engaged in the administration of their program, which puts them much closer to their employees and allows them to be more involved with the claim and the outcome,” Stock said.

Employers have some control over whether medical providers are approved or not approved to provide services and “you tend to get much more specialization and better doctors in nonsubscription,” he said.

On the other hand, many companies that choose to nonsubscribe may do so because they find the cost of statutory workers’ comp too high.

“The cost with nonsubscription can be significantly less than workers’ comp, depending on the SIR [self-insured retention] and the benefits,” TAGA’s Powell said.

When a company finds the cost of workers’ comp to be too expensive, they will usually do one of two things, he said.

“They’ll either drop comp and go totally bare and have no insurance or they’ll look to nonsubscription. What keeps them there is they have a lot more control over the claims process than they do as a subscriber.”

With nonsubscription, Powell said, the employer can talk to the medical providers, can get second opinions and even suspend benefits if injured employee doesn’t follow the require­ments of the program.

“You have a lot more control, which is what the employers like about it,” he said.

The industry sectors with the highest percentages of nonsubscribing employers, according to TXANS are:

Arts/Entertainment/Accommodation/ Food Services — 52 percent

Manufacturing — 37 percent

Finance/Real Estate/Professional Services — 33 percent

Health Care/Educational Services — 44 percent

Wholesale Trade/Retail Trade/ Transportation — 37 percent

Agriculture/Forestry/Fishing/Hunting — 25 percent

Other Services Except Public Administration — 42 percent

Mining/Utilities/Construction — 21 percent

Businesses that contract with local, state and federal governments or are governmental entities themselves are required to participate in the workers’ comp system and cannot operate as nonsubscribers in Texas.

A report issued by the TDI-DWC showed that 60 percent of subscribers to the workers’ comp system saw either decreases or no changes in their premium in 2012, compared to 74 percent in 2010.

The report, based on a survey of more than 2,500 Texas employers conducted July 2012 through August 2012 by the Public Policy Research Institute (PPRI), showed that 30 percent of subscribing employers saw premium increases in 2012, compared to 26 percent in 2010 and less than 25 per­cent in 2008.

According to TDI-DWC, the top three reasons employers cited for not subscribing to the comp system were “the perception that they had too few employees, they had few on-the-job injuries, and that they were not required to have workers’ compensation insurance by law.”

Alternatively, the survey found that Texas employers chose to participate in the workers’ comp system primarily because “they were concerned with lawsuits (21 percent) and because the employer was able to participate in a health care network (20 percent).”

The ERISA Plan

The federal Employee Retirement Income Security Act of 1974, or ERISA, is the key to nonsubscription, Powell said.

“Whenever you have a voluntary benefit program in place you have to have an ERISA document. The ERISA document spells out the coverages in the policy,” he said. “Each employee gets a copy of the summary plan description. It lays out the rules. Tells them what to do in the event they’re hurt on the job, tells them what the benefits would be, tells them if they have a dispute with their employer how it will be settled.”

The insurance programs and services provided under the nonsubscription plan may be self-administered by a very large company, but often they are managed by the insurance carriers or a third party administrator.

For instance, Powell said, Great American Insurance Co. has “a program in Texas that’s administered by a general agency … they provide the services. They provide the claims services, they provide the ERISA documents, they provide assistance in rolling out the ERISA, which I also participate in.”

While nonsubscribing companies may be large or small in size, smaller entities tends to need more assistance. “Generally the smaller employers need a lot of help with the services proposition,” Stock said.

His company, Combined Group, has a large staff dedicated to helping employers with their plans.

Insurance coverages are not necessarily cookie cutter, Stock said. Some employers might have a standardized plan but others would expand on the standardized plan.

“It gets back to the part of the employer being able to design a program that’s appro­priate for their workforce as opposed to a one size fits all,” Stock said.